"I am confident that when you do, you will find it meets the broad goals and objectives of the [law]," he wrote. "While our small business defined contribution program is still in its infancy, the principles upon which it is founded give this approach great potential."
A spokesman confirmed that Utah will continue to run Avenue H with or without the blessing of the federal government.
None of the governor's health advisers was available for comment.
Utah's exchange, launched in 2009, is worlds apart from the model envisioned by the Affordable Care Act.
It's open only to employees of small businesses, and serves more as a marketplace than a regulator. Virtually any willing insurance company can sell policies on the Web portal. Fewer than 1 percent of the state's small employers use it.
Those that shop there aren't treated to steep discounts or government subsidies; prices inside Avenue H are roughly the same as outside.
Its draw, or claim to fame, is that it allows employers to give workers a set amount, or "defined contribution," to put toward their insurance.
This gives employees the choice of about 140 different policies, as opposed to two or three hand-picked by their employer. And it helps employers better anticipate and contain their health spending from year to year.
It's this defined contribution model that Herbert wants to preserve and enhance.
He proposes growing Avenue H, opening it to individuals and larger employers and upgrading it to allow shoppers to pool funding from various sources to put toward the purchase of individual or family coverage.
But the task of doling out federal subsidies, in the form of tax credits, should fall to the feds, says a spreadsheet accompanying Herbert's letter.
"We do not believe it is the proper role of the states to get involved in eligibility decisions for federal tax credits," it reads.
Herbert also balks at enforcing the individual mandate, or requirement to have insurance, by imposing tax penalties, saying the feds should provide the tools and solutions for doing that.
He concedes some points, agreeing to enforce the ACA's insurance regulations, including requirements to rate insurance plans as gold, silver or bronze.
He wants the state to retain control of determining who is eligible for Medicaid and proposes adding to Avenue H "a simple pre-screening tool to help people know if they might qualify for public assistance before they complete a full application."
Preserving a role for insurance brokers to guide consumers in making choices remains important to the state. Avenue H should be "a self-sustaining, private sector-based solution," said Herbert.
There was no response from the Obama administration. Friday was the deadline for states to commit to running a federally compliant exchange, partner with the feds to create one, or ask the feds to run one for them.
The document failed to satisfy consumer advocates, who have been waiting months for the state's exchange blueprint.
"All along we've wanted the state to run the exchange, but not if it just means we're going to push the limits of what's allowed," said Judi Hilman, executive director of the Utah Health Policy Project. She fears losing time and falling behind other states already certified to move ahead with their exchanges.
Herbert's Office of Economic Development refused to release the state's full application for federal certification. Doing so might impair their ability to secure a federal grant or give unfair advantage to vendors that bid to manage exchange functions, said an explanation from the Attorney General's Office.
"I think this is [Herbert's] idea of keeping his options open. What federal officials asked for by the end of the day today is an outline for how Utah will run its exchange. The governor didn't provide that," said Lincoln Nehring, a health policy analyst at Voices for Utah Children.
State officials are, by now, well-versed on what the law demands of an exchange, and it doesn't fit with their vision – which is reasonable, Nehring said. "However ... the state should now step aside and let the federal government create and implement an exchange."
Related stories from this week
• Utah entrepreneur makes case for fed health exchanges
• Utah guv: We prefer our health exchange